FERS Disability Retirement Calculation: The 60/40 Formula Explained

The Two-Stage Formula

FERS disability retirement doesn't use the standard 1% per year of service calculation — at least not right away. Instead, it runs through a two-stage formula designed to provide higher income during the first year, then step down to a lower rate until age 62.

Months 1–12: 60% of your high-three average salary, minus 100% of any SSDI benefits you receive during those months.

Month 13 to age 62: 40% of your high-three average salary, minus 60% of any SSDI benefits.

There's a floor built into the formula: your disability annuity can never be less than what you'd receive under the standard FERS computation (1% or 1.1% per year of service multiplied by your high-three). If your earned annuity is higher than the 60/40 formula, OPM pays the earned amount instead.

What "High-Three" Means

Your high-three average salary is the average of your highest three consecutive years of basic pay. For most federal employees, this is the last three years before separation — but it doesn't have to be. If you had a higher-paying position earlier in your career, those years might produce a better average.

Basic pay includes locality pay and special rate supplements but excludes overtime, bonuses, and premium pay like night differential.

Running the Numbers

Here's how the formula plays out across several salary levels, assuming the employee receives SSDI:

$60,000 high-three, $1,500/month SSDI:

• Year 1: $3,000/month gross FERS minus $1,500 SSDI offset = $1,500 net FERS + $1,500 SSDI = $3,000/month total
• Year 2+: $2,000/month gross FERS minus $900 SSDI offset (60%) = $1,100 net FERS + $1,500 SSDI = $2,600/month total

$90,000 high-three, $2,500/month SSDI:

• Year 1: $4,500/month gross minus $2,500 = $2,000 net FERS + $2,500 SSDI = $4,500/month total
• Year 2+: $3,000/month gross minus $1,500 = $1,500 net FERS + $2,500 SSDI = $4,000/month total

$120,000 high-three, $3,000/month SSDI:

• Year 1: $6,000/month gross minus $3,000 = $3,000 net FERS + $3,000 SSDI = $6,000/month total
• Year 2+: $4,000/month gross minus $1,800 = $2,200 net FERS + $3,000 SSDI = $5,200/month total

The SSDI offset means your total income is always higher than the net FERS payment alone — SSDI isn't taken away from you, it's counted against the FERS calculation to prevent double-dipping at the full rate.

The Age 62 Recalculation

At age 62, OPM automatically converts your disability annuity to a standard FERS retirement benefit. This recalculation is significant because it does two favorable things:

Service credit for disability years. Every year you spent receiving the disability annuity gets added to your total creditable service. If you retired on disability at 55 with 20 years of service and reach 62, you'd have 27 years of creditable service for the recalculation.

COLA-adjusted high-three. Your original high-three average salary gets increased by every FERS cost-of-living adjustment that occurred while you were on disability retirement. With the 2026 FERS COLA at 2.0%, these adjustments compound over time.

The 1.1% multiplier. If your recalculated total service equals 20 or more years, the accrual rate bumps from 1.0% to 1.1% per year — a 10% increase in the annuity calculation.

Example: An employee who retired on disability at age 55 with 22 years of service and a $90,000 high-three. By age 62, they have 29 years of creditable service. If COLAs averaged 2% annually over those 7 years, the adjusted high-three is approximately $103,400. The recalculated annuity: $103,400 × 1.1% × 29 years = $33,000/year, or about $2,750/month.

When the Standard Formula Pays More

If you're close to regular retirement eligibility — say, age 60 with 25 years of service — the standard FERS formula might actually exceed the 60/40 disability formula. In that case, OPM pays whichever amount is greater.

This scenario most often affects employees in their early 60s with long service histories. If you're in that position, run both calculations before deciding whether to file for disability retirement or pursue a standard voluntary retirement.

COLA on Disability Retirement

FERS disability retirees don't receive a cost-of-living adjustment during their first 12 months on the disability roll. Starting in month 13, you receive the FERS COLA — which is capped at 2.0% when inflation runs between 2% and 3% (the 2026 FERS COLA is 2.0%, compared to 2.8% for CSRS and Social Security).

This is actually an advantage over standard FERS retirees under age 62, who receive no COLA at all until they turn 62.

Sick Leave Credit

Unused sick leave can't be cashed out at separation, but it isn't wasted. At the age 62 recalculation, OPM adds your unused sick leave balance to your total creditable service. Every 2,087 hours of sick leave equals one additional year of service in the calculation.

The FERS Disability Retirement Guide includes an annuity estimator worksheet that runs the 60/40 formula, SSDI offset, and age 62 recalculation for your specific salary and service numbers.

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